LAND (RESTRICTIONS ON ALIENATION) ACT

Arrangement of Sections

1. Short title and date of operation.

2. Restriction on transfer of land.

3. Exemption from the application of the provisions of section 2.

4. Conditions for the registration of instruments relating to the transfer of title of lands.

5. Restrictions on the leasing of lands to foreigners.

5A. Land Lease Tax not to be levied with effect from January 1, 2016.

6. Tax on the lands leased out to foreigners.

7. Exemption from the Land Lease Tax.

8. Conditions on the registration of instruments of lease.

9. Enforcement.

10. Land Lease Tax to be credited to the Consolidated Fund.

11. Restrictions on mortgaging lands of which title has passed or has been leased to a foreign national.

12. Land Reform Act to apply in respect of exempted transfers and leases.

13. Valuation.

14. Offences and punishment.

15. Offences by bodies of persons.

16. Concessions for Development Projects.

17. Regulations.

18. Alienation of land in contravention of this Act to be void.

19. Repeal of Part VI of Act No. 11 of 1963.

20. Avoidance of doubts.

21. Validation.

22. Recovery of any difference between the actual amount and the amount paid as the Land Lease Tax.

23. Refund of excess amount paid as Land Lease Tax.

24. Sinhala text to prevail in case of inconsistency.

25. Interpretation.

38 of 2014;

3 of 2017,

21 of 2018.

AN ACT to make provisions to stipulate Restrictions on the Alienation of Lands in Sri Lanka to foreigners, foreign companies and certain institutions with foreign shareholding; to specify the circumstances where the exemptions are granted; to impose a land lease tax for leasing of lands to foreigners, foreign companies and certain institutions with foreign shareholding; for the granting of concessions to certain development projects; for the repeal of Part VI of the Finance Act, No. 11 of 1963; and to provide for matters connected therewith or incidental thereto.

[Date of Commencement: 1st January 2013]

1. Short title.

This Act may be cited as the Land (Restrictions on Alienation) Act.

2. Restriction on transfer of land.

(1) Notwithstanding any provision to the contrary in any other written law, the transfer of title of any land situated in Sri Lanka, shall be prohibited if such transfer is—

(a) to a foreigner; or

(b) to a company incorporated in Sri Lanka under the Companies Act where any foreign shareholding in such company, either direct or indirect, is fifty per cent or above; or

(c) to a foreign company,

unless exempted as provided in section 3.

(2) —

(a) For the purpose of maintaining the legal validity of a transfer of land to a company incorporated in Sri Lanka under the Companies Act, with less than fifty per cent of foreign shareholding, the foreign shareholding of such company shall remain less than fifty per cent, for a minimum period of consecutive twenty years from the date of such transfer.

(b) Where the foreign shareholding of a company referred to in paragraph (a) reaches or exceeds fifty per cent, contrary to the provisions of paragraph (a), in consequent to—

(i) the change of ownership of shares directly or indirectly; or

(ii) the death of a shareholder of such company and the shares of the deceased shareholder devolving, in accordance with the applicable laws of succession of Sri Lanka, on his next of kin who is a foreigner, the transfer of land referred to therein shall be void and shall have no effect in law, with effect from the date of increase of the foreign shareholding:

Provided however, where a company referred to in paragraph (a),—

(i) listed in the Colombo Stock Exchange (with a minimum number of two hundred shareholders in the case of a Diri Savi Board and one thousand shareholders in the case of a Main Board), takes steps to reduce its foreign shareholding to less than fifty per cent, within a period of twelve months from the date of increase of its foreign shareholding; or

(ii) other than a company referred to in subparagraph (i), takes steps to reduce its foreign shareholding to less than fifty per cent, within a period of six months from the date of increase of its foreign shareholding,

in compliance with the provisions of that paragraph, the transfer of land referred to in paragraph (a), shall be deemed to be legally valid, with effect from the date of restoring the foreign shareholding of such company to less than fifty per cent.

(c) For the purposes of this section the expressions “Diri Savi Board” and “Main Board” shall be read and construed in accordance with the provisions of the Listing Rules of the Colombo Stock Exchange issued under its listing requirements, in terms of the Securities and Exchange Commission of Sri Lanka Rules, 2001, made under section 53 of the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987 and published in Gazette Extraordinary No. 1215/2 of December 18, 2001.

3. Exemption from the application of the provisions of section 2.

(1) The provisions of section 2 shall not apply to—

(a) any land the title of which is transferred to a Diplomatic Mission of another State within the meaning of the Diplomatic Privileges Act or to an International, Multilateral or Bilateral Organization recognized in terms of that Act;

(b) a condominium parcel specified under the Apartment Ownership Law:

Provided that, the entire value shall be paid upfront through an inward foreign remittance prior to the execution of the relevant deed of transfer;

[S 3(1)(b) subs by s 2(a) of Act 21 of 2018.]

(c) any land the title of which is transferred to a foreign investor in consequent to a decision of the Cabinet of Ministers taken prior to January 1, 2013, involving direct investment of foreign currency, as per the related agreements on such investment structured on the basis of any written law governing the tax regime prior to January 1, 2013, and has ensured compliance by making inward remittances to Sri Lanka;

(d) any land the title of which is transferred by intestacy, gift or testamentary disposition to a next of kin (who is a foreigner) of the owner of such land, in accordance with the applicable law of succession of Sri Lanka;

(e) any land the title of which is transferred to a dual citizen of Sri Lanka within the meaning of the Citizenship Act;

(f) any land the title of which is transferred to any bank licensed under the Banking Act, in which any foreign shareholding is fifty per cent or above—

(i) at an auction conducted by such Bank in terms of the Recovery of Loans by Banks (Special Provisions) Act, No. 4 of 1990 or Mortgage Act, in the discharge of a mortgage of such land to such Bank;

(ii) in execution of a decree of court to enforce the recovery of a loan given by such bank;

(g) any land the title of which is transferred to any Finance Leasing Institution in which any foreign shareholding is fifty per cent or above—

(i) where such land has been mortgaged to such Finance Leasing Institution as a security for a lease;

(ii) in order to execute a lease and an agreement to sell or a loan and an agreement to sell;

(iii) in execution of a decree of court to enforce the recovery of a loan given by such Institution;

(h) any land, the title of which was transferred to a company referred to in section 2(1)(b), during the period commencing from January 1, 2013 and ending on the date on which the certificate of the speaker is endorsed in respect of this Act, provided such company has been in active operation in Sri Lanka for a period of not less than ten consecutive years prior to the date of transfer of such land; and

[S 3(1)(h) am by s 2(b) of Act 21 of 2018.]

(i) any land, the title of which is transferred on or after April 1, 2018, to a company referred to in paragraph (b) of subsection (1) of section 2, listed in the Colombo Stock Exchange.

[S 3(1)(i) ins by s 2(c) of Act 21 of 2018.]

(2) The Minister may in consultation with the Minister to whom the subject of lands has been assigned and with the prior written approval of the Cabinet of Ministers, by Order published in the Gazette, exempt any foreign entity engaged in the banking, financial, insurance, maritime, aviation, advanced technology or infrastructure development project identified as a Strategic Development Project, in terms of the provisions of the Strategic Development Projects Act, No. 14 of 2008, from the application of the provisions of section 2.

(3) The Minister may in consultation with the Minister to whom the subject of Lands has been assigned and with the prior written approval of the Cabinet of Ministers, by Order published in the Gazette, exempt any foreign company engaged in international commercial operations, from the application of the provisions of section 2, where the land is purchased to locate or relocate its global or regional operations or to set up a branch office.

(4) Where the transfer of title of a land is effected in terms of this section, the provisions of this Act shall also apply to every subsequent transfer of title of such land or part thereof.

4. Conditions for the registration of instruments relating to the transfer of title of lands.

(1) The Registrar of Lands shall not register an instrument effecting any transfer of title referred to in section 2, under the provisions of the Registration of Documents Ordinance, unless such registrar of lands is satisfied that such transfer is in compliance with the provisions of this Act.

(2) —

(a) Notwithstanding the provisions of subsection (1), an instrument effecting, the transfer of title of a land to a next of kin (who is a foreigner) of an owner of such land, shall be registered by the Registrar of Lands, where the notary public attesting such instrument of transfer certifies in his attestation that the transferee is the next of kin of the owner of the land transferred, as recognized by the applicable laws of succession of Sri Lanka.

(b) Where any question arises whether a person is the next of kin of the owner of the land or which law is applicable to the succession, the Registrar of Lands shall refer the matter to the District Court having jurisdiction over the area in which the relevant land is situated, for a determination through summary proceeding.

(3) Where the title of a land is transferred to a company incorporated in Sri Lanka under the Companies Act, with less than fifty per cent of foreign shareholding, it shall be the duty of the Registrar of Lands to confirm himself whether the foreign shareholding of such company is less than fifty per cent, by requiring the secretary of such company to submit documentary proof to the effect that the foreign shareholding of such company is less than fifty per cent of the total number of shares issued for the time being.

(4) —

(a) The secretary to the relevant company shall inform the Registrar of Lands in writing in every six months period commencing from the date of the registration of the relevant deed of transfer, that the foreign shareholding of such company has not exceeded fifty per cent of the total number of shares issued by such company, during the said period of six months.

(b) Where the foreign shareholding of a company referred to in paragraph (a) reaches or exceeds fifty per cent the relevant Registrar of Land shall make a note to that effect in the relevant folio.

(5) For the purposes of this section “Registrar of Lands” means the respective Registrar of Lands of the land registry, to whom the instrument of transfer is presented for registration.

5. Restrictions on the leasing of lands to foreigners.

(1) Notwithstanding any provision to the contrary in any other written law, the leasing of a land—

(a) to a foreigner; or

(b) to a company incorporated in Sri Lanka under the Companies Act, where any foreign shareholding in such company, either direct or indirect, is fifty per cent or above; or

(c) to a foreign company,

shall be effected subject to the payment of the Land Lease Tax imposed under section 6:

Provided however, the maximum tenure of any such lease shall not exceed ninety nine years.

(2) Any State land so leased shall be re-vested on the State free of encumbrances upon the lapse of the period of lease.

(3) Any state land so leased shall not be sub-let or sub-leased violating the provisions of relevant indenture of lease or without obtaining the prior written approval from the Minister to whom the subject of lands has been assigned.

5A. Land Lease Tax not to be levied with effect from January 1, 2016.

Notwithstanding anything to the contrary in any of the provisions of this Act, the provisions relating to the Land Lease Tax shall not apply to a lease of any land—

(a) to a foreigner; or

(b) to a company incorporated in Sri Lanka under the Companies Act, where any foreign shareholding in such company, either direct or indirect, is fifty percent or above; or

(c) to a foreign company,

under and indenture of lease executed on or after January 1, 2016, and accordingly the Land Lease Tax shall not be charged, levied or collected from any such person or company on or after such date.

[S 5A ins by s 2 of Act 3 of 2017; am by s 3 of Act 21 of 2018.]

6. Tax on the lands leased out to foreigners.

(1) There shall be a Land Lease Tax payable up-front by the Lessee, for every lease of land, in terms of section 5(1), at the execution of the indenture of lease or prior to such execution unless exempted under section 7.

(2) The rate of such Land Lease Tax shall be fifteen per cent of the total rental payable for the entire duration of the lease.

(3) Notwithstanding the provisions of subsection (2), the Land Lease Tax shall be 7.5 per cent of the total rental payable for the entire duration of the lease in respect of—

(a) any land leased to a company referred to in section 5(1)(b), provided that such company has been in active operation in Sri Lanka for a consecutive period of not less than ten years, immediately prior to the date of the indenture of lease;

(b) any land leased to a subsidiary of a holding company incorporated in Sri Lanka under the Companies Act, in which the shareholding of the holding company in such subsidiary is fifty per cent or above and any foreign shareholding in the holding company is fifty per cent or above, provided that such holding company has been in active operation in Sri Lanka for a period of not less than ten (10) consecutive years, immediately prior to the date of indenture of lease:

Provided however, where the shareholding of the holding company in the subsidiary, becomes less than fifty per cent the Land Lease Tax applicable in respect of such lease shall be fifteen per cent for the balance period of lease, with effect from the date of reduction of the shareholding;

(c) a condominium parcel situated on or above the fourth floor of a building specified under the provisions of the Apartment Ownership Law, where the period of lease is less than thirty five years;

(d) a condominium parcel situated below the fourth floor of a building specified under the provisions of the Apartment Ownership Law, where the period of lease is not more than ninety nine years;

(e) the lease of any land in terms of section 5, situated within—

(i) a Licensed Zone declared under the Board of Investment of Sri Lanka Law, No. 4 of 1978; or

(ii) a Tourist Development Area declared under the Tourism Act, No. 38 of 2005 or Tourist Development Act, No. 14 of 1968; or

(iii) an Industrial Estate established under the Industrial Development Act, No. 36 of 1969; or

(iv) an area declared by the Minister by regulations as an area, for which the reduced tax rate is applicable;

(f) any land leased to a company referred to in section 5(1)(b), where the Cabinet of Ministers decides having taken into consideration that a substantial foreign investment has already been realized by such company into the related sector that such reduced tax rate is justifiable in order to ensure level playing field among its competitors in the related sector.

(4) The Lessee referred to in subsection (1) shall be liable in addition to the Land Lease Tax, to pay the applicable stamp duty under the Stamp Duty Act, No. 43 of 1982 and any other tax or charge payable in respect of any such transaction under any applicable written law in force for the time being.

(5) The Land Lease Tax shall be paid in a manner as may be prescribed.

7. Exemption from the Land Lease Tax.

(1) The Land Lease Tax payable under section 6, shall not be applicable on the lease of—

(a) any land a Diplomatic Mission of another State within the meaning of the Diplomatic Privileges Act or to an International, Multilateral or Bilateral Organization recognized in terms of that Act;

(b) a condominium parcel situated on or above the fourth floor of a building specified under the provisions of the Apartment Ownership Law (excluding the ground level floor and floors which accommodate any common element or elements within the meaning of Apartment Ownership Law) where the period of lease is thirty five years or above and the lease rental for the full period of lease is paid through inward remittance of foreign currency on or prior to the date of the execution of the relevant indenture of lease;

(c) any land to a dual citizen of Sri Lanka within the meaning of the Citizenship Act;

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